Global stock indexes edged lower on Friday, reversing early gains, as investors absorbed new data showing that U.S. monthly inflation remained unchanged in May. The U.S. personal consumption expenditures (PCE) price index, a key inflation gauge, posted a flat reading for May, following a 0.3% increase in April. Over the past 12 months, the PCE price index rose 2.6%, slightly down from the 2.7% increase in April, aligning with economists’ expectations.
This data spurred optimism among some investors, suggesting that the Federal Reserve might begin cutting interest rates in September. Initially, the MSCI world stock index, S&P 500, and Nasdaq all hit record highs in early trading before retreating later in the day.
On Wall Street, trading volume surged toward the closing bell as the FTSE Russell finalized the reconstitution of its indexes, marking the second-biggest daily volume of the year. Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina, noted, “In the morning, the market seemed to be most focused on the PCE report.” She added, “But you had the Russell reconstitution, and the expectations were that we could see – especially toward the afternoon and close – quite a bit of movement and churn in the market. You also had end-of-the-quarter repositioning and selling.”
The Dow Jones Industrial Average fell 45.20 points, or 0.12%, to 39,118.86. The S&P 500 lost 22.39 points, or 0.41%, to 5,460.48, and the Nasdaq Composite dropped 126.08 points, or 0.71%, to 17,732.60. For the quarter, the S&P 500 gained 3.9%, the Nasdaq rose 8.3%, while the Dow fell 1.7%.
MSCI’s global stock gauge declined by 1.74 points, or 0.22%, to 802.01, while the STOXX 600 index fell by 0.23%.
Investors were still digesting comments made during the U.S. presidential debate on Thursday night between Democratic President Joe Biden and Republican rival Donald Trump, as the November election approaches. The debate left some of America’s allies bracing for a potential Trump return to office.
Shares of Trump Media & Technology Group initially rose but ended the day down 10.8%.
U.S. Treasury yields rose amid political uncertainty following the presidential debate and ahead of the French legislative elections. The yield on benchmark U.S. 10-year notes increased by 10.4 basis points to 4.392%, from 4.288% late on Thursday.
The U.S. dollar dipped slightly after the inflation data. The dollar initially fell against the yen, a currency pair highly sensitive to U.S. economic data due to its positive correlation with Treasury yields. However, the greenback edged higher to trade near flat on the day, with investors focusing on the wide interest rate differential between the United States and Japan. The dollar was last up slightly against the Japanese yen at 160.815 yen, after earlier hitting a 38-year high of 161.27 yen.
The dollar index, measuring the greenback against a basket of currencies, fell 0.05% to 105.84, with the euro up 0.1% at $1.0713. The yen’s slide has fueled expectations of intervention by Japanese authorities to stem the currency’s weakness.
Oil prices also saw a decline. U.S. West Texas Intermediate (WTI) crude futures fell 20 cents, or 0.24%, to settle at $81.54 a barrel.